Interactive TV Set to Revolutionise How Nearly 13 Million Households Will Use Their TVs by 2004...But It Will Augment, Not Kill PC Internet.

Business/Technology Editors

LONDON--(BUSINESS WIRE)--Jan. 6, 2000

(Nasdaq:FORR) Despite years of debate and delay, digital TV now has significant momentum. And while almost 13 million British households will have access to interactive services through their TVs by 2004, significantly the growing number of technically-savvy regular internet users (18.5 million by 2004) are keen to take-up digital TV to augment their PC use, not replace it.

Indeed, of UK adults expecting to go digital in the next two years 71% cite cost as the main factor behind choosing a platform, while channel packaging, programming, and the provider's reputation are all more important digital TV considerations for UK consumers than the interactive services it will offer. These are some of the findings from the latest management report `Interactive TV: Models for growth' from Fletcher Research.

Comment

Shobhit Kakkar, business analyst at Fletcher Research comments, "Importantly, this report shows that there is a place for interactive TV and PC internet to co-exist. The growth in digital and interactive TV use will complement, not replace, PC internet.

"Both devices have very different uses, and while interactive TV services will overlap with some web services, consumers will want both. For instance television is typically used for entertainment, passively viewed in a communal household location, and is rarely used in the workplace. The internet, on the other hand, is used both at home and work, is an active medium, and is generally used alone for surfing for information content," he adds.

Demographically those interested in adopting digital TV are the same as for any new technology - young, upscale, technically-savvy males. Of all those that intend to have digital TV within the next two years, 32% are AB and 31% C1s. By age, the 15-24 and 25-34 year age groups both respectively account for 38% of all those that plan to take up digital TV in the short term, with the 35-44 year olds accounting for a further 33%.

Kakkar continues, "But the fact that getting digital TV is not as radical as buying into a new technology, and that the government plans to phase out analogue terrestrial broadcast by 2010, means that practically all UK households will have digital TV within the decade.

"The usage patterns of PC and TV will evolve over that time, and TV viewers will become more active in their involvement with their televisions and, through the use of the web, the PC will become more of a recreational tool. This will drive a need for providers of both PC and TV services to ensure compatibility and comparability across all platforms and interactive devices - something that is not yet the case," he adds.

Other key findings of the report

Satellite will become the leading digital TV platform. While the UK's cable infrastructure is widely acknowledged to be best suited to interactive services, BSkyB's leverage of its existing subscriber base, its early entry to digital, and its aggressive free set-top-box incentives mean that satellite will have more subscribers (5.0m) than any other digital TV platform by 2004. The cable industry will have 4.1m subscribers, and 3.8m households will have terrestrial digital TV, 2.0m of which will receive subscription pay-TV services.

Interactive advertising has a long way to go:

Interactive advertising could bring the strengths of TV and internet advertising together. Interactive TV should produce the opportunity to offer high impact TV-quality ads that also enable consumers to express an interest and even go on to buy products. For the first time, strong brand-building could be combined with immediate results and accountability.

But new models are still nascent. Platform providers and broadcasters are still figuring out what interactive TV advertising will look like, how it will work logistically, how they will charge for it and how it will be measured. The process is complex because all parties will have to work together to produce interactive ads, with roles changing from the analogue world, and is also being hindered because advertisers are not being brought into the debate.

A fragmented industry will severely hinder growth. The multitude of platforms, systems and standards has fragmented the industry before it has even begun, creating a complex environment that will deter all but the most committed of advertisers. Unless this changes dramatically, by 2004 only 7% of broadcast TV ads will carry any form of interactivity. Revenues from interactive advertising on the closed walled-gardens will also be fairly small, at (pound)135m by 2004, compared to (pound)5bn for traditional TV advertising.

Interactive retailing will take off quickly:

Home shopping works. The UK has a history of embracing home shopping, through mail order, telephone and now the internet. Interactive TV retailing will build on that to offer consumers a new shopping experience that they are ready to embrace - 28% of the UK population are already comfortable with the idea of shopping via their TVs, although only 16% are comfortable with spending large sums.

The TV gives convenience and the opportunity for impulse purchasing. TV retailing will not just be online retailing on another device. Retailing on all TV platforms will mainly be offered through walled gardens, not from the internet, and will encourage impulse buying rather than carefully researched purchasing.

Research-led sectors will not translate. Research-led sectors, such as cars and some personal finance, as well as comparison shopping agents will not translate easily onto TV retailing. This low competition environment will also discourage TV retailers from advertising heavily and offering steep discounts to win loyal customers; instead they will rely on impulse and convenience purchasing.

Consumers will spend (pound)2.6bn on TV retail by 2004. The familiar, safe TV environment will help to overcome the security fears that internet retailing suffers from and consumers will become comfortable with buying through their TVs. Digital TV viewers will start to buy small ticket items, such as CDs, videos and tickets, and travel-related high ticket items such as flights and holidays, which have proved very successful on Teletext and TV shopping channels. Partly due to the lack of comparison shopping functionality, other high-ticket items such as PCs will fare less well on the TV platforms.

About Fletcher Research

Fletcher Research is the UK's leading new media research company, specialising in producing data and reports on the UK internet market, such as Dream Machines: Selling New Cars Online; Internet Access Strategies; The UK Internet Survey 1999; Window Shopping? A Study of UK Online Retailing; Online Advertising Strategies and Sterling Service: A Survey of UK Personal Finance Online.

In addition to producing management reports, Fletcher Research provides market research data on UK internet users through its UK Internet User Monitor(TM), the largest scale research project on the UK internet. It's Internet AdWatch(TM) product delivers the only UK web advertising monitoring service. Fletcher also hosts a series of acclaimed Fletcher Expert Forums, such as Personal Finance Online, Media Online and Retail Online. Separately, its Fletcher Advisory operation consults to many blue-chip companies on the strategic and business challenges of the internet and digital TV.

Fletcher Research was acquired by Forrester Research in November 1999, and after a six-month period of transition will be branded Forrester UK at the end of Q2 2000.